Graphic Packaging Holding Company

Good day and thank you for standing by. Welcome to the Graphic Packaging First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Melanie Skijas, Vice President, Investor Relations. Please go ahead.

Good morning and welcome to Graphic Packaging Holding Company's conference call to discuss our first quarter 2021 results. Speaking on the call will be Mike Doss, the company's president and CEO, and Steve Scherger, executive vice president and CFO. To help you follow along with today's call, we will be referencing our first quarter earnings presentation, which can be accessed through the webcast. via self-directed slides, and also on the investor section of our website at www.graphicpkg.com. I would like to remind everyone that statements of our expectations, plans, estimates, and beliefs regarding future performance and events constitute forward-looking statements. Such statements are based on currently available information and are subject to various risks and uncertainties that could cause actual results to differ materially from the company's present expectations. Information regarding these risks and uncertainties is contained in the company's periodic filings with the Securities and Exchange Commission. Undue reliance should not be placed on forward-looking statements, as such statements speak only as of the date on which they are made, and the company undertakes no obligation to update such statements except as required by law. Mike, I'll now turn the call over to you.

Thank you, Melanie. Good morning to everyone joining us on the call on webcast today. I'm pleased to report a solid start to 2021 in what can be described as a truly unique operating environment. We continue to deliver organic sales growth, capturing new, real opportunities in growing markets with our innovative fiber-based packaging solutions. Global adoption of paperboard multi-packs and keel clip packaging solutions for beverages, paperboard trays including our new paper seal and produce pack lines for food packaging, and IntegraFluid, a ship-and-own container package for omni-channel commerce, all are examples of products that are driving our results. We remain encouraged by the traction we are seeing from our innovative packaging solutions with existing and new customers in growing markets around the world. Aligned with Vision 2025 and supported by our history of successful acquisitions, we are announcing today our intent to acquire AmeriCraft Cartons, The proposed transaction will provide benefits to our customers, employees, and stakeholders. I will provide additional details on this development shortly. Turning to slide three, let me update you on a high-level financial and operational highlights for the quarter. Growth continued in the first quarter of 2021 with net organic sales increasing 2% year-over-year. Notably, this follows a very strong first quarter of 2020 where net organic sales growth was 7%. Over the last 12 months, we've exceeded our targets, delivering 3% net organic sales growth. Stronger than forecasted sales growth is the result of ongoing conversions to more sustainable fiber-based packaging options across our food, beverage, food service, and consumer goods markets. In addition, our business has benefited from increased at-home consumption. Importantly, we continue to have confidence in our 100 to 200 basis points goal for annual net organic sales growth established with Vision 2025. Achieving consistent year-over-year organic sales growth is supported by the strengthening global trend to more sustainable packaging alternatives. As we look out specifically at the year to the anticipated volume from our innovation pipeline coupled with return to growth in food service, we expect 2021 net organic sales growth will be at the high end of our 100 to 200 basis point range. Adjusted EBITDA in the quarter of $240 million met our expectations before the $29 million of costs we incurred associated with winter storm URI. During the quarter, we did see a return of inflation across some of our commodity input cost categories such as logistics, recycled fibers, resins, and chemicals. We are executing multiple price initiatives with our customers to fully recover the current inflationary environment. Our commitment to price offsetting commodity input costs remains a pillar of our overall value creation model for stakeholders. Also during the quarter, we made further progress on the Vision 2025 goal of achieving 80% to 90% paperboard integration across our consolidated business. We exited the first quarter of 2021 at 71%, improving from 70% in the full year of 2020 and 68% in 2019. We expect to benefit from a meaningful increase in our paperboard integration rate as we start up the new CRB paperboard machine in Kalamazoo later this year while winding down a portion of the existing supply agreements. In addition, we will drive paperboard integration rate higher as we grow our converting volumes both organically and through acquisitions. Our partnership with International Paper continued to wind down during the quarter as we acquired another $400 million of minority partnership interest, reducing their interest to 7% from the initial 21% held at the inception of the partnership. In addition, work on our CRB platform consolidation project in Kalamazoo continues ahead of schedule with the new K2 machine set to begin paperboard production in the fourth quarter. Planning related to our more recently announced investment in Texarkana to convert an existing SBS machine to swing capacity capable of also producing CUK is tracking on time and on budget. This represents a very efficient path to meet increased global demand for CUK and further advances our efforts to closely match supply with areas of strengthening demand. Continuing the capital allocation discussion, let's move to slide four, where I will provide an overview of our intent to acquire AmeriCraft Carton. We have entered into an agreement to acquire AmeriCraft Carton for approximately $280 million. The company is one of the largest remaining independent converters in North America with over $200 million in annual sales, operating seven well-capitalized and high-quality converting facilities. The company has a great reputation with customers, has been in business for over 100 years, and generates approximately $30 million of annual EBITDA. We see 300 basis points of paperboard integration opportunity across all three substrates and expect an additional $10 million of synergies over 24 months following the close. The transaction is expected to close in the next few months. Turning now to slide five in the discussion of innovation and new product development, I will focus my comments this morning on projects and work underway in our plastic substitution growth platform, one of three growth markets we are targeting with a $7.5 billion total addressable market opportunity. We have discussed with you in past calls the significant ongoing conversions to paperboard solutions we are seeing in our beverage and food service markets. An additional area of expansion for us is into food categories around the perimeter of the grocery store. We've targeted and are seeing success in new categories as we align our global innovation resources and have established frameworks to execute on the biggest opportunities. On slide six, I will provide details on our paper seal innovation. With the launch of PaperSeal in 2020, we targeted a $1 billion addressable market opportunity to replace foam trays and shrink wrap alternatives commonly found in the grocery store meat departments around the world. Our PaperSeal packaging innovation offers producers and retailers significantly increased food tray recyclability as well as enhanced branding opportunities. We have seen traction in Europe and Australia with a list of retailers, including Aldi, SF, ECA, Lidl, Marks & Spencer, and Woolworths, adopting our packaging for meat and poultry products. We have tests underway in North America and are on track to be commercial in the region in 2021. Building on early momentum of PaperSeal, we are executing a product expansion with the launch of PaperSeal Slice and PaperSeal Wedge. The recyclable barrier line paper packaging format now offers the same ease of use and sustainability benefits for sliced deli meats and cheese categories. The packaging ensures hygienic and shelf life characteristics that match existing packaging alternatives. The design allows for enhanced branding and meets the requirements for high-speed food manufacturing lines. Turning to slide seven, we are also targeting and expanding in another category found at the perimeter of the store, produce. With our produce pack line, we are offering a variety of fully sustainable, shell-threaded solutions for protecting and preserving fresh fruit and vegetables. ProducePak offers significant branding advantages in an eco-friendly container versus existing alternatives. The leading Michigan apple distributor, Bell Harvest, recently switched to ProducePak for its Fuji, Honeycrisp, and Gala apples in response to consumer preference for fiber-based packaging. With the launch of our new Punnett tray line, we are extending our offerings to new categories like berries and snacking-sized vegetables. Our global marketing, sales, and innovation and sustainability team members are working closely together and are focused on winning in today's market. Sustainability is a key part of every new product development discussion and is central to our go-to-market strategies. We are engaging with external stakeholders to learn more about consumer preferences, product direction, and the evolving needs in the marketplace as we move to a more environmentally conscious society. Providing packaging enhancements for consumers that include 100% recyclability and reduced carbon footprint will be the key to our new product development roadmap moving forward. Let me conclude on slide eight, revisiting my comments made at the end of what was an incredible year in 2020. We are creating value through leadership with our vision 2025. Simply put, we are running a different race. The investments we have made to advance our capabilities, engage employees, and optimize our mill and converting infrastructure differentiate us. We are leaders in sustainability because we have built our business on it. Our packaging solutions are made primarily from renewable wood fiber from sustainably managed wood baskets in the United States, and the vast majority of our fiber-based packaging can be recycled today. As a result of prudent capital management and strong cash flow generation, we have invested back into the business and have continued to enhance our service offering to meet global demand and consumer preferences. We are delivering on new product development opportunities with customers and achieving our sustainability supported growth goals. With the proposed acquisition of AmeriCraft, we are positioned to further strengthen our growth outlook, adding new customers and end markets while driving greater paperboard integration. We are confident in the pipeline in front of us to achieve 100 to 200 basis points of annual net organic sales growth and expect to be at the high end of that range in 2021. Our ability to help customers reduce their environmental impact and elevate their brands through continued innovation and improvements in packaging is expanding opportunities and driving growth. Steve, I'll now turn it over to you.